Last month, for the first time in more than 2½ years, the Department of Energy announced a solicitation making up to $8 billion in loan guarantee authority available to advanced fossil energy projects. What steps is the Loan Programs Office taking to prevent project failures? During today's OnPoint, Peter Davidson, the office's executive director, discusses the types of projects the agency is looking to support under the new solicitation and explains how his office will ensure success in this new round of funding. He also explains how the office's work is affected by criticism and scrutiny of previous loan project failures.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Peter Davidson, executive director of the Loan Programs Office at the U.S. Department of Energy. Peter, thank you so much for joining me.
Peter Davidson: Very nice to be here, Monica.
Monica Trauzzi: Peter, "60 Minutes" recently ran a highly publicized and debated piece on clean tech that questioned the effectiveness of DOE's loan guarantees. What is your office's response to the assertions that were made in that piece?
Peter Davidson: We've had a number of announcements from the secretary, the chief of staff pointing out really what everybody who's been a responsible journalist who covers this space was just filled with inaccuracies, filled with very incorrect things. I mean, one of the areas I like to point to is Lesley Stahl talked about this issue of $150 billion going into clean tech. The only way you can get to that number, which she really doesn't go into, is if you put in the spending on the production tax credit and the investment tax credit. And if you look at the impact of those two programs for the deployment of wind and the deployment of solar, it's just been unbelievable. You know, wind was the number one generating asset a few years ago in the United States. The amount of solar has gone up by a factor of 10. Everybody's aware of the booming in rooftop solar. All that is fueled by the PTC and the ITC. So for them to state that has not had the impact and the wide deployment is just on the service just doesn't make sense.
Monica Trauzzi: So many of these failures happened before you took over as director of the loans office. How are you changing the way things work?
Peter Davidson: Right. Well, the interesting thing about the loan program, we now have a portfolio of $24 billion: $16 billion in our renewable portfolio and $8 billion in our advanced auto, which I'm happy to talk about. The total losses that have happened in the program are under 3 percent. So 97 percent of the portfolio is money good and performing exactly as we would've hoped. And when Congress set up the program, they made a provision. So they expensed through the budget that the program might have a credit subsidy charge or have losses of close to $10 billion. So more than 97 percent of that reserve which Congress set aside for this program still exists, so the program has been actually performing above expectations in terms of the performance of the portfolio. And we take extremely seriously our commitment to the taxpayer and making sure the loans we do are very solid and really work out well.
Monica Trauzzi: But the failures are a hit to taxpayers, so the criticism that the office has received, is it unfair, or is it just to sort of question the failures and, even though they are disproportionate to the projects that have succeeded?
Peter Davidson: Right. No, I don't think so. Look, we live in such a politicized world. Any type of failure, any type of problem is just blown out of perspective, and that was certainly what happened in this program, many, many unfair attacks on it. I mean, we have to realize there is a global battle going on for the future of clean technology, and the United States is really not in the game. China's in the game. Germany's in the game. The European Union is in the game with massive subsidies for renewables and putting programs in place to incent clean technologies. In the United States we're really not doing as much as we should be, and as a result we're losing our role in clean technologies globally.
Monica Trauzzi: So are you doing anything differently on the next round of loans for renewable energy projects?
Peter Davidson: Well, we've done $16 billion of loans already for the renewable energy sector. That was all related to the Stimulus Act. So those things came and they've gone in 2011. The solicitations we have now, we've just launched an advanced fossil fuels solicitation. That's an $8 billion solicitation, and that's really for the whole life cycle of a fossil fuel. So it's from the extraction side, taking the stuff out of the ground, oil, gas, coal, through retrofits of utilities or retrofits of factories, and then all the way through end use. So we're interested in finding combined heat and power, waste heat recovery, all those things.
Monica Trauzzi: Carbon capture?
Peter Davidson: Carbon capture's definitely a piece of it, as are retrofits to coal plants, oil plants or gas plants. And what's interesting in this solicitation is in order to qualify you have to meet four requirements. One, it has to be an innovative technology or an innovative process, right? So innovation is really what Congress set up this program to encourage innovation. The project if successful has to reduce greenhouse gases in a meaningful measure, so there's a real greenhouse gas reduction criteria. It is a loan, it's not a grant. It's a loan that has to be repaid, which is very important. And the project has to be located in the United States or its territories. It can have foreign owners, but the project has to be here.
Monica Trauzzi: You first announced the solicitation in December, so how is the process going up until this point?
Peter Davidson: Right. We announced in December. It's the first new solicitation the Loan Program Office and the Department of Energy has done for a loan program in 2½ years. So we are very excited it's come out. We're very excited the secretary is supportive of it. The president's supportive of it. It's a part of the president's Climate Action Plan. And really we're just very happy. It shows the Loan Program Office is back in business. And we released it in December. It's gonna be a rolling application deadline. So the first application deadline is February 28th, and then periodically after that there'll be a chance for people to submit, but the first one is the 28th. We won't really know how many applications come in until then, but the reception we're getting going around and speaking about it has been extremely strong.
Monica Trauzzi: Many members of Congress have been extremely critical of your office's work. How much scrutiny do you feel you're under, and how does that affect the work that your office is doing?
Peter Davidson: Well, we have a great deal of scrutiny, but we expect that. We anticipate that, and that's completely appropriate. I mean, they're taxpayer funds, so we're aware that we have a very, a high burden and a high responsibility to manage that correctly. We work really closely with the authorizing committees in both the House and Senate. We work very closely with OMB, which watches what we do very carefully and really works with us. So we have such a high level of scrutiny that we do for all of our loans. When an application comes in, we put it through a very, assuming they pass the initial criteria and we put them into our due diligence process, we then have a very onerous process and a very in-depth process on the origination side. We study the market they're in. We do a deep financial assessment, a markets assessment which is kind of where they're selling their product, a deep environmental review, too. So all those things are very rigorous. It takes us about six months to a year to do the due diligence on any potential loan application.
Monica Trauzzi: So any way to assure that this next round of loans will not yield the level of failures that we saw last time around?
Peter Davidson: Well, we didn't have failure. I mean, we were 97 percent effective last time, so there was not a failure and we were well below what was mandated by Congress. So there was absolutely no failure in our program before. We feel very comfortable in that.
Monica Trauzzi: All right, we'll end it right there. Thank you so much for coming on the show, Peter.
Peter Davidson: OK.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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